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Has Weak Lending and Activity in the UK been Driven by Credit Supply Shocks?
Author(s) -
Barnett Alina,
Thomas Ryland
Publication year - 2014
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12071
Subject(s) - economics , supply shock , aggregate demand , monetary economics , aggregate supply , demand shock , real economy , financial crisis , credit crunch , aggregate (composite) , supply and demand , monetary policy , macroeconomics , materials science , composite material
This paper investigates the role of credit supply shocks in driving the weakness in UK banks’ lending and economic activity during the various UK financial crises since 1966. It uses a structural VAR analysis to identify credit supply shocks separately from standard macroeconomic shocks. It finds that credit supply shocks can account for most of the weakness in bank lending since the onset of the recent financial crisis and 1/3 – 1/2 of the fall in GDP relative to its historic trend. It also finds that credit supply shocks behave more like aggregate supply shocks than aggregate demand shocks.